Explanation:

Introduction:
Inventory planning involves determining the optimal quantity of inventory to be held in order to meet customer demand while minimizing costs. Various lot size decision policies are used in inventory planning to determine the quantity of inventory to be ordered or produced at a given time. These policies aim to strike a balance between carrying costs (the cost of holding inventory) and ordering costs (the cost of placing an order or setting up production).

Lot for Lot Production:
Lot for lot production is a lot size decision policy where the quantity produced or ordered is equal to the quantity demanded in each period. In other words, the lot size is set to match the demand exactly. This policy minimizes carrying costs as there is no extra inventory carried over to the next period. However, it can result in higher ordering costs if frequent orders or setups are required.

Economic Order Quantity (EOQ) Lot Size:
The Economic Order Quantity (EOQ) lot size is a lot size decision policy that calculates the optimal order quantity based on the tradeoff between carrying costs and ordering costs. It aims to minimize the total cost of inventory by finding the order quantity that minimizes the sum of carrying costs and ordering costs. The EOQ formula takes into account the annual demand, ordering cost, and carrying cost per unit.

Period Order Quantity (POQ) Lot Size:
The Period Order Quantity (POQ) lot size is a lot size decision policy where the quantity produced or ordered is fixed for a specific period, such as a month or a quarter. The lot size is determined based on the anticipated demand for that period. POQ can help in achieving economies of scale by producing or ordering in larger quantities, which can reduce per unit costs. However, it can lead to carrying extra inventory if the actual demand is lower than anticipated.

Part Period Total Cost Balancing:
Part Period Total Cost Balancing is a lot size decision policy that aims to balance the carrying costs and ordering costs by finding the lot size that minimizes the total cost over a specific planning period. It takes into account the inventory carrying costs and ordering costs for each period in the planning horizon. The lot size is determined by comparing the total costs associated with different lot sizes.

Explanation of Correct Answer:
The correct answer is option 'B' - Economic Order Quantity (EOQ) lot size. EOQ lot size policy is considered the optimal lot size decision policy as it takes into account the tradeoff between carrying costs and ordering costs. It aims to minimize the total cost of inventory by finding the order quantity that balances these costs. By calculating the optimal order quantity, EOQ avoids the carrying of unnecessary extra inventory to the end of the planning period, reducing carrying costs. EOQ lot size policy is widely used in inventory planning due to its cost-effectiveness and efficiency.

In Summary:
- Lot for lot production minimizes carrying costs but can result in higher ordering costs.
- EOQ lot size policy calculates the optimal order quantity to minimize total costs and avoids carrying unnecessary extra inventory.
- POQ lot size policy can lead to carrying extra inventory if the actual demand is lower than anticipated.
- Part period total cost balancing aims to balance carrying costs and ordering costs by finding the lot size that minimizes the total cost over a specific planning period.